Q2 2023 Micron Technology Inc Post Earnings Analyst Call

March 28, 2023

Yeah.

[music].

Thank you for standing by and welcome to Micron's Post earnings Analyst call. At this time all participants are in listen only mode. After the Speakers' remarks, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. If your question has been answered and you'd like to remove them.

Yourself from the queue simply press star one again.

I'd now like to reduce your host for today's program Farhan Ahmed Vice President Investor Relations. Please go ahead Sir.

Thank you and welcome to Micron technologies fiscal second quarter 2023.

Cell site called back.

On the call with me today are our Chief business Officer Summit Sodano, our EVP of global operations managed patio.

Our CFO Mark Murphy.

As a reminder, the matters. We're discussing today include forward looking statements regarding market demand and supply are expected results and other matters.

These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today.

We refer you to the documents, we filed with the SEC, including our most recent Form 10-K and 10-Q for a discussion of risks that may affect our future results.

I'll now turn the call over to the operator to begin the Q&A session.

Certainly once again, if you have a question at this time. Please press star one on your telephone one moment for our first question.

And.

Our first question comes from the line of Vivek Arya from Bank of America. Your question. Please.

Alright. Thank you for the call back I had a two part question one is how far is micron.

In terms of your cash cost in DRAM and NAND and what do you think is the delta for your competitors right now.

And then maybe one for Mark Mark even when I take.

Your inventory writedown.

Expectations for May it still seems like the ending inventory would be 77 5 billion.

That would still be up higher than what you had exiting the last fiscal year.

Is that a comfortable range to be in or do you think that still leaves open the room for more.

Inventory write downs in the future.

Let me start.

And then go to the cost question so.

Yes.

The question.

Yeah, we're not we're not comfortable with where inventory levels are at.

Separate and apart from that write down question Vivek.

We do have elevated inventory levels, we expect pre write down the <unk>.

<unk> peaked in the second quarter, and we would expect over time for <unk>.

The supply demand balance to improve on customer inventories.

Improving and volumes increasing sequentially and eventually.

Working inventory levels down, but it's going to take some time.

<unk>.

And yes, we would like.

Yeah.

Certainly targets have not changed around.

100 to 110 days of inventories on hand.

Again, it takes some time.

Yes.

The question of of write Downs is.

A function of the.

Quantity of inventories.

And the cost of course.

But also pricing.

So that's why we made the point in the call the.

And indicate that.

Yes, right down assumptions are sensitive to.

Yes.

Those factors, including price.

And.

If if prices.

And our outlook are better than expected then.

Yes, we will have.

Yeah, less write downs of inventory potentially even less in the third quarter.

Inventory.

This projections worsen versus our current view, we could have larger write downs for example in the third quarter, maybe the fourth quarter. It just depends on the.

Yes.

The shape of the recovery and we have a certain view, which is England.

Which is incorporated in the write offs that we took.

Okay, and if I can and then on your first question about cash costs I can take that diminish.

So we've said that we're not yet.

Cash costs for either DRAM and NAND, so really the under utilization actions that we've taken have really been.

Around managing the overall supply demand environment of managing our inventory.

And trying to.

Manage our.

Probably to come down in line with the demand that we see.

And with regard to competitors I cant really really comment other than to say and we've given some disclosures in the past about how.

Technology leader.

<unk>, one alpha and 176 last year has definitely helped us to become very competitive in costs. So we feel good about about where we are and where our cash cost position would be relative.

To others as well.

And if I could quickly follow up mark any.

I know, it's never a simple question, but in our.

Modeling euro gross market basket.

It's quite challenging any rough guidelines you could.

<unk> to us so back to at least have some kind of boundary conditions on how to model gross margins for the next several quarters.

Okay.

Good question Vivek.

Anticipating the question I did.

Other call make an effort to provide a profile on gross margin.

Of course, as we just discussed.

It is.

It's difficult because at these levels of profitability and yes.

Gross margins will be very sensitive to pricing assumptions.

Cost actions such as Underutilization so.

So.

With that.

Qualification.

We did say if you look at our reported margins, we would expect the <unk> to be the trough.

And then on lower inventory.

Charge as in third quarter, we expect a sequential improvement.

And then.

In the fourth quarter as mentioned based on our current pricing assumptions, we would have.

A small or no write off.

And then of course is the underutilization charges they weigh on the.

The fourth quarter and first quarter, and then improve gross margins of that improve through the year that's on reported.

Now if you if you strip out just the write downs.

In the second quarter and third quarter.

The second quarter would be seven 3% gross margin.

Third quarter will be negative seven five so clearly that profile is down and then.

And that just yet.

That's just a function of the pricing environment and again the cost of underutilized underutilization.

Which includes Perry costs now with this view of pulling those charges out.

<unk>.

Write downs out under this view, we would trough in the second quarter and then we would begin to improve off these low levels.

Yes, so as we get volume leverage on our period costs.

As a.

As the Underutilization effects play through and then most importantly.

As customer inventories begin to improve and inventories begin to come down and the supply demand picture begins to improve so.

Clearly the.

Supply demand balance and supply coming out of the system.

In concert with volumes, increasing sequentially as an important part of the recovery here.

Just one quick.

On the pricing comment as well as when he said the.

Pricing is.

We're not close to cash cost.

Last couple of quarters, Q2, Q1, but in the guidance that we've provided in Q3 with the pricing that we have.

In their end up placing that.

We are seeing in the market, particularly NAND.

<unk> cash.

Cash cost for Q3.

And.

And getting closer in terms of DRAM as well, but just wanted to highlight that cash cost is obviously different from variable cost the variable cost is much lower than the cash cost because certain cash costs.

Fixed in nature, So wanted to just provide that clarification.

Thank you one moment for our next question.

And our next question comes from the line of Vijay Rakesh from Mizuho. Your question. Please.

Yes, Hi, just a quick question just going back on the inventory side I should look out exiting quarter, given the incremental funding from Dominion of write Downs and I know you mentioned, 25% wafer stock cuts now.

And the Capex tweaks I guess, what do you expect inventory exiting the quarter to be closer to that 7 billion $7 billion range.

And then a follow up.

Yes on a dollar basis, we would expect inventory level survey and elevated for some time, but begin to come down.

Through <unk>.

<unk> 24.

So, but again it depends on.

Bob.

Yes, it depends on the.

Nature of the recovery.

And we do expect that shipment volumes to increase.

Through the year end.

And <unk>.

Inventory days, certainly too on a pre write off basis to come down and then on a dollar basis eventually begin to come down.

Got it and then on the write downs between February and the May quarter I'm just wondering.

What would be the split between DRAM and NAND.

DRAM and NAND than in.

Is it that.

<unk> taken more on the PDL, Florida, the DDI side.

Since you would expect from DDR high demand to probably pick up into the back half so might be some benefit from that.

Any color there thanks.

Yes.

Report these.

Down at the corporate level and given how we run the business unprecedented other factors. So we don't break it down by technology or by Bu.

Thank you one moment for our next question.

Our next question comes from the line of Sidney Ho from Deutsche Bank. Your question. Please.

Thanks for taking the question so I'm still trying to figure out the utilization charges, you're embedding in the fiscal third quarter guidance trying to bridge. The gross margin in Q2 to Q3, excluding that inventory write down your top off maybe down 15 percentage points.

Is there any color you can provide just for fiscal Q3, I know you talked about $900 million for the fiscal for the for the full year.

Yes, we're just providing the <unk>.

Full year.

If we look at.

Alright, just provided the full year. If you give me a few minutes maybe go to the next question I can maybe give you a little bit more detail on the work that out.

Okay. The reason I asked is just to give you a background is because if I look at that down 15 points.

Let's assume half of that $900 million.

Is it included in fiscal Q3, that's already 12 points of margin different so that implies the asps not really declining that much but I'm not sure.

Missing, but maybe a second question, while you look at that.

Are you still expecting to have production cut now 25% of its F. 20% through the end of this fiscal year are there any plans to go beyond the current fiscal year.

Yeah, Let me let me maybe ask your first question I have already got the answer on the first one so of the 900.

Million.

Not quite half of it is in the third quarter and then.

And then we've got.

Amount split between.

Some second and fourth.

And.

As it relates to.

Yeah, we've not commented on.

Not commented on utilization beyond 'twenty three Sanjay mentioned on the call that we may well have to evaluate that based on market conditions and so forth.

That's right.

Scale through this year.

And in Sydney.

To paraphrase that.

Under utilization charge that Mark mentioned.

A portion of it is going to be in the write down amount, yes, as well so just like Canada.

That is a piece.

You have to take into account and just just to be clear and I think I mentioned this on the main call that the reason the proportion is is higher.

The total underutilization charges because.

Of that write down accounting and it's a fact.

So part of that $500 million of write downs.

Let's see.

On the relationships and the utilization rates are.

The 500 would include utilization also.

Those higher.

Utilization underutilization.

Under utilization creates higher cost inventories so by definition as you're as you're.

Writing that inventory down.

Part of that charge would be that underutilization related cost.

Got it got it okay, a quick follow up if I could.

I may if you exclude the inventory write downs can you say what the DRAM gross margin is negative in fiscal Q3 and at what point does it make sense to cut affirmative production completely stopped production probably not realistic since.

Since you want to maintain your share.

Okay.

Yes, I mean, we are not.

Giving out.

Gross margin breakout breakdown between DRAM and NAND, particularly.

All of these charges that were talking about related to under utilization inventory.

Right down et cetera, so definitely when you provide more color when we report results.

At this time, but having said that.

Broadly speaking our.

Goal is to certainly keep flat share.

And customers and to <unk>.

Not.

Drive the pricing down to gain share.

We had a follow on price.

<unk>.

Trying to just keep our share flat.

And manage our business.

Sydney, one more thing that Mark mentioned on the.

You may recall was that the.

The gross margins, excluding the impact of the write downs in Q3 was 75% negative.

Obviously, the DRAM margins are a lot better than that that is something.

We can see.

While we are not providing you the details and split between the DRAM and NAND gross margins.

And certainly one other one other thing.

On the.

On the Underutilization charge, which I mentioned that.

That's.

That's inclusive of.

Costs that are absorbed in the inventories and also period costs and just keep in mind that.

If you are then translating what portion of that goes into the write down.

Clearly the only the portion that's related to the inventory costs.

Just wanted to make sure that distinction was noted.

Thank you. Our next question comes from the line of harsh Kumar from Piper Sandler Your question. Please yes.

Yeah, Hey, guys. Thanks for letting me ask the question I was just curious very roughly.

No.

What is the price difference between DDR flooring DDR five right now that you guys are seeing and then also maybe you can help us think about how much of your DRAM revenues is <unk> right now.

No.

How much do you think or when do you think the crossover will occur for you guys.

Yes, so in terms of DDR four versus DDR five.

We still have a healthy premium between.

DDR for <unk> video.

The premium the premium is bigger in the data center than it is in the client space.

And both data center and client.

Five to continue ramping through this.

Current and next calendar year, and we expect to cross over to happen in both segments around mid calendar 2024 from a bid perspective, the crossover will happen earlier on a revenue basis.

But it will happen around mid 2024 on a bid basis.

Treatment.

Understood. Thank you guys.

Thank you one moment for our next question.

And our next question comes from the line of Bruce <unk> from BMO. Your question. Please.

Alright. Thank you excuse me Mark I know you've been.

Very helpful. In answering all these questions on the inventory I had a couple of clarifications.

At the beginning of your prepared remarks, you said this is <unk>.

Due to citizens and then.

Did I get it right that in the fiscal third quarter.

It will be $300 million.

Included in.

And that from the $1 $4 billion write down.

Yeah, the reference to the 300 operation was.

The one four creates lower cost inventories and so the 300 was in reference to the benefit associated with that.

Lower cost inventory sell through.

In other words had we not written it down.

We would have $300 million and less income in Q versus since we pulled those inventory costs forward into two <unk>, we now have $300 million higher income in <unk>.

So, it's not necessarily umbrella and that's where that Brett.

Separate of course from yes that the inventory charge.

And <unk> is the $500 million, that's an incremental inventory charge.

Got it.

So the.

The one four and 500 the charges that you've taken now.

We should continue to see benefit of saturated distance. This inventory is not being is not going obsolete you said theres no risk couple of turnarounds then.

Correct, that's permanently lower cost inventory.

Yes.

Period, or the period that we sell yes.

It'll move through and pass on it.

As part of the turns in the business.

Got it and you would call it out explicitly right every quarter, then you'll get the benefit correct.

I mean, we haven't decided like we will see how the business proceeds.

Okay, and then sorry, just on the minus seven five number that you gave for fiscal third quarter does that.

Is that inclusive of the benefit from the 300 million because you said trip out everything and.

That's right.

Hang out that stripping out they.

Right down.

Okay got it got it and then I had a quick one for Sumit on the Capex side.

Just a question I'm sure you get we all get what happens to your competitiveness as.

As you push out you know, what's the right way to think about it.

In terms of the <unk>.

Particularly on the DRAM side.

I'll have <unk> answer that question sure.

Sure.

Richard I think.

You gave some good color on the call about the.

Progress that we're making on our.

Of our new technology nodes that we announced last year, one beta for DRAM and 232 layer for NAND and feel very good about what those are going to be able to deliver in terms of.

Per wafer gain over the prior notes both of which were also a good node. So feel really good about the intrinsic technology capability and then now the.

The yield ramps that we have.

Been able to demonstrate our.

Reaching reaching targeted yields faster than prior nodes really faster than any notes in our history. So we feel very good about our ability to demonstrate technology capability and now we're preparing to do is to enable those both of those technologies across our broad portfolio of products for example in one data.

We talked about.

Our prepared remarks, the LP five part thats going to be.

Generating revenue for US later this year, but we're also going to be utilizing that technology across DDR, five and compute across high bandwidth memory graphics et cetera. So.

Getting ready to use that that really strong note across the.

Portfolio and similarly in NAND, we started in client SSD rule will move the 232 layer into mobile into data center as it does we feel very good about that and then as we look forward to.

The next generation nodes for example, one gamma making very good progress on one gamma.

And.

That's the number we're going to introduce <unk> and we've actually already taken delivery of.

We've mentioned before of our first production of UV tools in Taiwan, and we've actually already started.

Using those tools to some degree on.

Limited production in our what alpha and it's already within Gist.

Just a couple of quarters of having landed the tools.

Demonstrated the ability to match yields with our multi patterning immersion technology on one alpha it's been in production now for a couple of years, So really really good progress on <unk> in that.

Gives us confidence that when we introduce one camera will also be a strong introduction with with good.

Inherit technology capability for.

For wafer gain and cost reduction as well as going to it's going to ramp predictably and provide a strong cost reduction for across the portfolio.

Okay. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of increment from BNP. Your question. Please.

Yes. Thank you.

Two quick ones, if I may just.

But I was hoping you could discuss your China exposure by product category. My understanding is that you are primarily tied to mobile.

But if you perhaps rank order the remaining segments, who would be very helpful. As we think about the pending recovery in China.

Yes, I mean, we definitely have.

The dealer business in China, as you said mobile customers.

Very strong center in China for mobile Oems.

We also have very strong automotive business there as you know the EUA.

Vehicle.

<unk> Heiko drove.

What would be expected.

You bet.

Really high in China. The penetration is very high the uptake is very high in these cars, especially.

Especially at the medium to higher and have a lot of electronics.

Conductor components in them so.

We have a good.

Acquisition as you know.

<unk> market share leaders in automotive so we continue to have a good position.

Position that as well and then of course, we have.

Customers on the client side.

As well as on the data center side.

With a broad range of customers. So we are pretty diversified.

Across many different segments.

And.

We expect that as the China recovery gains momentum after the reopening we do.

We expect that there will be some demand uplift coming from China later in calendar 'twenty three.

That's helpful. Thank you if I may from my second question Hugh.

Mark you indicated 'twenty 'twenty four capex will decline from 2023.

Perhaps maybe just a question for <unk>, but is it fair to suggest were implicit outlook is that capex will be all brownfield or upgrades.

Then you would achieve projected demand, which should recover in fiscal 'twenty four through the inventory on your balance sheet, unless maybe demand were to recover faster than you currently expect maybe just.

Discuss that a bit more color that'd be very helpful. Thank you.

Sure. So as we we have taken multiple levers to be able to reduce the supply.

We've reduced capex.

<unk> in particular, as we talked about more than 50% for FY2023.

We've said that for 24, it will be even lower.

We've also.

<unk> utilization.

Within the within our facilities and then last one as we held inventory, we're holding inventory on our balance sheet. So as we look forward into 'twenty four the first thing, we'll do is bring our inventories down and that will help us too.

Be able to meet demand in.

Keep up with the market increases a bit growth increases that we.

See we talked about.

And our inventories will come down and then as we start to feel comfortable that we're we have a trajectory to reach our inventory targets of course, we can.

Increase our utilization rates to be able to increase supply as well.

And then the.

Then.

Capex for supply growth would be the kind of the next lever in the last lever so really right now even in 'twenty three the capex that we have Wi Fi that we put to work has been primarily actually more than primarily I'd say exclusively for technology transition in technology learning on these two new nodes that I mentioned and that will be.

We will be focused on and even as we go through 'twenty four is bringing the benefits of the new technology to the product portfolio.

Whether thats, one beta or whether that's a 232 layer.

Very clear thanks.

Thank you one moment for our next question.

Our next question comes from the line of Mehdi Hosseini from <unk>.

Your question please.

Yes, Thanks for taking my question a couple of follow ups.

I'm just looking at.

Quarterly Capex trends.

Out.

Several cycles and I come up with an estimate.

Four.

<unk> billion annualized Capex just for maintenance.

What it would take too.

Ron utilization rate.

70% to 80%.

Obviously, we can abroad.

Guess.

But.

<unk> is a $4 billion annualized maintenance capex in the ballpark.

Maybe I don't know that we've really kind of given a definition I think different products have different definitions about what maintenance capex.

Involved so I don't.

I think we are.

Norway prepared.

<unk> maintained sort of it.

Sure.

Yes, so if you think about.

The.

The Capex and the way we were.

Sure.

The elements that we have the big buckets are of course, <unk>, which primarily is for technology transitions and when implemented the way we typically have that does provide bit growth.

The technology transition Wi Fi does provide growth as the primary source of the bit growth that we would target within our supply.

<unk>.

The facilities requirements that we have four.

Implementing those implementing those technologies and adding the the.

New equipment and those tend to be a little bit lumpier.

You do.

Sort of well in advance of when you when you need them and in fact.

I think we mentioned that the mix of our Capex in the second half of this year is moving more towards.

Construction is becoming an increasing part of the.

Second half of the year.

More than double more than.

Twice, what it was in the first half of the year.

No.

Starting to prepare to clean room space for the for the future.

And then we have the assembly test and other R&D and other areas that we have that are.

To be able to either provide us with our.

With good cost reductions for our managing our assembly test cost or to provide R&D capabilities for the future. So these are kind of the big buckets that we typically define our our capex.

Maybe the Capex is not really like a consumable.

So it's more it is spot.

Technology transition product enablement.

And.

Advancing to more advanced nodes, which is giving you better cost and better production and more and more and more but you shouldnt think that just flow maintaining the bit production, we need to invest in capex.

I was just trying to get a sense of wood.

Cash.

Go to <unk>.

Like to forecast free cash flow, Okay, and then just looking beyond the current <unk>.

Environment, obviously, there's a lot of moving parts with the ROI. The open Underutilization charges, let's say February of calendar year 'twenty four.

Q2, that's slide 24.

Yes.

And.

You have.

Let's say some of the videos.

The.

Costs down and then video five pre.

Premium.

With DDR four.

If all equal even if prices were to go sideways.

Given this inventory adjustment.

If prices were.

The stable you should you should be able to.

A better margin profile.

Excluding all the onetime charges.

Yes, Matt.

Not providing yes.

Specific guidance that far out and we will as we get closer to the date and the market situation becomes clear we did give you a profile on <unk>.

How to look at the back half of this year and expected improvement on.

Gross margin through 'twenty four assuming that all of these factors we laid out move in the direction that we expect and as you as you point out.

Particularly if you're talking about second quarter of 'twenty four.

Some of the write downs that would occur in third quarter.

That lower cost inventory would be passing through in the second quarter of 'twenty four.

Okay.

Clarification question do you mind, if I just have a quick follow up.

Good morning. Thank.

Thank you.

Next year as you think about.

DDR five premium for both PC and server applications.

Would that be the premium would that be also the.

Market pricing for DDR.

Would that be also that.

So just to give you a forward that you have.

Yes, I think.

A lot depends on.

The market environment and competitive behavior, but generally obviously DDR for as you know.

Versus Edr five five times bigger.

Goodbye.

Alright.

At the module level as well because it has.

Integration.

Compared to Q4, so it's higher.

But also higher cost. So those are some other factors that come into play and like you said I mean, the DDR for DDR five transition is going to be taking place and there is.

More inventory and DDR four than there is DDR five so a lot more.

<unk> deployment in the future comes in as new purchases from our customers.

That's another thing to look at it but I think broadly speaking I think you have a number of data points that we have delighted to you.

Which include.

Thats bottoming in fiscal Q1 of this year.

Before like <unk>.

As a inventory, peaking in fiscal Q2.

Our data center revenue bottoming in fiscal Q2.

Customer inventories improving so when you zoom out of all of this.

Also told you that looking at 2025 calendar year, we expect record time in that year. So we.

Do expect that.

Looking out multiple quarters and into 25 that is going to be a very substantial amount of growth that we are expecting in that timeframe.

Particularly in the late 'twenty four 'twenty five timeframe and obviously continuing to focus on significant improvements in profitability and trajectory of free cash flow in the interim from here to 24.

Got it thank you.

One other thing.

Peter you asked about <unk> 5 million or one beta technology is optimized for DDR five.

In terms of the architecture and the technology. So we feel very good about what that will eventually position as far as the market transitions.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Brian Chin from Stifel. Your question. Please.

Hi, there good afternoon, thanks for taking the question maybe.

Maybe a two parter on sort of demand.

I think too many people have asked about that but whats the lion's share of the reduction in the counter 'twenty three memory bit demand forecast is that related mainly to data center. What is your also underlying assumption for data center bit demand growth in calendar 'twenty three and then the second part of that is.

Does your expectation for a mid single digit decline.

The calendar 'twenty, three PC Tam does that sell out or sell and figure out.

I asked because it sounds like it could be weaker than then down mid single digits, and I think selling ties more into kind of activity levels at the Oems.

Yes.

This is.

Definitely a good question and we focus on.

A lot of these dynamics with our customers on an ongoing basis. So.

In the last three months since our last earnings call. We definitely have been continuously assessing as we always do they have enough inventories our customers have and its impact on demand for.

The near term planning over the next several quarters and so the degradation in our calendar 2023 outlook for DRAM and NAND came as a result of the assessment of the inventories, particularly in the data center.

And also the pace of progress of <unk>.

Inventories so the inventories have been improving.

So it's a matter of the rate and pace of that improvement that we have to adjust for it or not pan but also the extent of the.

Pullback in growth estimates for both the PC units as well as smartphone so smartphones going from.

Low single digit increase to low single digit decrease in units in calendar 'twenty three over the last three months and on the PC side, Yes mid single digit decrease.

That puts the PC units and this is more of a.

Sell through comment.

What's the PC units at a level that is very consistent with the level of EBITDA that vehicle that in 2019 from our global PC unit sales perspective. So that's how we think about the PC business and.

Certainly different customers have different amounts of channel inventory, so their own sell in versus sell out rates will be different.

And on demand expectations are based on a bottoms up view of what we are feeling customers sell out is going to be.

Because that's going to start.

We sell in is going to be into the channel because thats going to determine the consumption of DRAM and that.

Okay. Okay.

Okay, great that makes sense, maybe just a quick thing.

In technology.

But.

In terms of mix I know you won't be too specific about percentages and crossover et cetera, but when next year would you kind of plan for wafer inputs to really began to shift toward one data.

And $2 32 layer technologies.

I know.

It may become more observant.

Once once you are kind of out of some of the utilization charges and et cetera, right FIFO inventory et cetera, but.

I'm wondering if there's sort of a kind of a particular point in next year that you kind of.

Meaning that to start to pick up some inertia.

It's too far out Brian great like at this point I don't think its worthwhile, but like you said is demand picture improves.

We will have more clarity on it.

We just have to see.

Time play out and as we turn back on the utilization and that is currently being implemented.

We will.

Also down one data at that time from the demand improves.

That's fair enough. Thank you.

Thank you one moment for our next question.

And our next question.

From the line of <unk> <unk> from Raymond James Your question. Please.

Thank you Mark.

Im just trying to figure out the cash flow for the next quarter.

Obviously, you've got some help from working capital in the February quarter. So if you could maybe help us.

If you are expecting somewhat similar benefit from working capital.

In the next quarter or two I think that'll be really helpful.

Okay.

Yes.

Listen on free cash I think it is helpful that maybe step back and.

This has been such a sharp and sudden downturn.

And we know we know all the factors and we've been aggressively and with even greater intensity through the fall.

Taking actions.

Capex reductions cutting operating spend.

During utilization.

And even heard some additional actions announced today so yes.

We've also.

Over the past several months.

Used our balance sheet to bolster liquidity and make sure that we're making the best long term decisions for the business.

And so that's.

That sort of give some backdrop as to where we are I mean, our actions are helping.

Improves the financial picture from what it would be otherwise, but it's.

It's clear that.

We need the broader market to recover and more specifically more supply to come out of the system, but.

On free cash flow, we do expect.

Free cash flow to improve from here.

Slightly as first at first.

Second the third quarter.

As reductions in Capex are partially offset by weak operating cash flows.

We have low volumes and challenging pricing so that's.

That's weighing on operating cash flow as the.

So the receivables have waned and the.

And the inventories remain elevated.

Over time, though we see free cash flow improving sequentially by.

By sustaining our capital discipline.

And importantly, improving operating fundamentals.

Specifically, we do see shipments.

And you're going to increase from here as we've talked about customers replenish inventories inventories begin to decline.

Across the industry and channel supply demand balance to improve in pricing to revert to more sustainable levels, it's not sustainable where it is.

So between our actions in a healthier industry, we see fundamentals improving.

And we're certainly focused on returning to positive free cash flow within.

Quarterly positive free cash flow within fiscal 'twenty.

Got it but it doesn't look like you're assuming your inventory levels to decline in absolute basis in the may quarter.

Alright.

Sort of elevated inventory levels are.

In part contributing to this.

Free cash flow.

Use that we have and we're certainly.

Reducing capex and spend and other things to improve the situation and we do expect slight improvement in free cash flow.

In the third quarter relative to the second but it is.

Still negative.

Significantly got it.

Got it thank you and one.

Question on the mechanics of the under utilization maybe from a niche.

As we as we go through the next few quarters.

Demand starts to recover.

Just curious if you expect pretty much all of the 100% of the underutilized capacity to come back or.

At what point some of the capacity becomes permanently impair our move to the next node I guess and then.

Bring that back is there any incremental capex that we should be aware of.

I'm glad you asked that it's actually definitely one of the considerations that we have when we think about Underutilization is as we implement these new technology nodes, we can utilize some of this.

Idled equipment to help us be capital efficient as we implement the next generation nodes right. So.

That's always the balance that we're thinking about I wouldn't think of it in terms of any sort of impairment I don't think that we're in that window or reuse node node to node is very good. So I wouldnt I don't think that idled equipment ends up getting impaired etcetera.

First of all the consideration, but the ability to utilize some of the equipment to be a little bit more efficient as we transition to new nodes, because as we mentioned new nodes could provide new product capabilities, whether thats higher performance products or as we mentioned DDR five capability or or others.

We're trying to make sure we balanced the whole picture on.

Utilization capex and demand for new technologies across our portfolio.

I guess as you bring that capacity back online is there any incremental capex that we should be aware of in the short term.

No.

Not specifically for bringing online, but it depends on how we have multiple options of how we bring that capacity online in order to implement.

New technology nodes or to just replace the capacity that we had had taken down before.

Got it thank you.

Thank you. This does conclude the question and answer session as well as today's program. Thank you ladies and gentlemen, you may now disconnect good day.

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One again now.

Now I'd like to reduce your host for today's program Farhan Ahmed Vice President Investor Relations. Please go ahead Sir.

Thank you and welcome to Micron technologies fiscal second quarter 2023.

Well site call back.

On the call with me today are our Chief business Officer Sumit Sodano.

VP of global operations, Moniz, patio, and our CFO Mark Murphy.

Yes.

As a reminder, the matters. We're discussing today include forward looking statements regarding market demand and supply unexpected risks results and other matters.

These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today.

We refer you to the documents, we filed with the SEC, including our most recent Form 10-K and 10-Q for a discussion of risks that may affect our future results.

I'll now turn the call over to the operator to begin the Q&A session.

Certainly once again, if you have a question at this time. Please press star one on your telephone one moment for our first question.

And.

Our first question comes from the line of Vivek Arya from Bank of America. Your question. Please.

Alright. Thank you for the call back I had a two part question one is how far his microphone.

In terms of your cash cost in DRAM and NAND and what do you think is the delta from your competitors right now and then maybe one for Mark Mark even when I take.

Your inventory write down.

Expectations for May it still seems like the ending inventory would be 77 5 billion.

That would still be up higher than what you had exiting the last fiscal year.

Is that a comfortable range to be in or do you think that still leaves open the room for.

More inventory write downs in the future.

Let me start maybe.

Then go to the <unk>.

Cost question so.

Yes.

The question.

Yeah, we're not we're not comfortable with where inventory levels are and and <unk>.

Separate and apart from the write down question Vivek.

We do have elevated inventory levels, we expect pre write down the <unk>.

Does it peak in the second quarter.

And we would expect over time.

Sure.

The supply demand balance to improve on customer inventories.

Improving and volumes increasing sequentially and eventually <unk>.

Working inventory levels down, but it's going to take some time.

<unk>.

And we would like.

Yeah.

Yes, certainly targets have not changed around.

100 to 110 days of inventories on hand.

Again, I'm going to take some time.

Bob.

Yes.

The question of of write Downs is.

A function of the.

Quantity of inventories.

And the cost of course.

But also pricing so that's why we made the point on the call the.

And to indicate that.

Yes, right down assumptions are sensitive to.

Yes.

Those factors, including price.

And.

If gas prices.

And our outlook are better than expected then.

And we will have.

Yeah, less write downs of inventory potentially even less in the third quarter.

Inventory.

This projections worsen versus this current view, we could have larger write downs for example.

In the third quarter, maybe the fourth quarter. It just depends on the.

Yes.

The shape of the recovery and we have a certain view, which is England, which is incorporated in the write offs that we took.

Okay and then on your first question about cash costs I can take that this is <unk>.

So we've said that we're not yet cash costs for either DRAM and NAND. So really the underutilization actions that we've taken have really been.

Around managing the overall supply demand environment of managing our inventory.

And trying to.

Manage our.

If I had to come down in line with the demand that we see.

And with regard to competitors I cant really really comment other than to say and we've given some disclosures in the past about how.

Technology.

Leadership, one alpha and 176 last year has definitely helped us to become very competitive in costs. So we feel good about about where we are and where our cash cost position would be relative.

To others as well.

And if I could quickly follow up mark any.

I know, it's never a simple question, but.

Modeling gross margin basket.

It's quite challenging any rough guidelines you could give to us. So that's the key is to have some kind of boundary conditions on how to model gross margins for the next several quarters.

Okay.

Yes.

Good question Vivek.

Anticipating the question I did in the other call make an effort to provide a profile on gross margin.

Of course, as we just discussed.

Yes.

It's difficult because at these levels of profitability and yes.

Gross margins will be very sensitive to pricing assumptions and.

Cost actions such as Underutilization so.

So.

With that.

Qualification.

We did say if you look at our reported margins, we would expect the <unk> to be the trough.

And then on lower inventory.

Charge is in third quarter, we expect a sequential improvement.

And then.

In the fourth quarter as mentioned based on our current pricing assumptions, we would have.

A small or no write off.

And then of course as that Underutilization charges they weigh on the.

The fourth quarter and first quarter and then.

Proof of gross margins of that improves through the year that is Han reported.

Now if you if you strip out just the write downs.

In the second quarter and third quarter.

The second quarter would be seven 3% gross margin.

Third quarter will be negative seven five so clearly that profile is down and then.

And that just yet.

That's just a function of the pricing environment and again the cost of underutilized underutilization.

Which includes Perry costs now with this view of pulling those charges out.

<unk>.

Write downs out under this view, we would trough in the second quarter and then we would begin to improve off these low levels.

Yes, so as we get volume leverage on our period costs.

As <unk>.

Has the Underutilization effects play through and then most importantly.

As customer inventories begin to improve and inventories begin to come down and the supply demand picture begins to improve so yes.

Clearly the.

Supply demand balance and supply coming out of the system.

In concert with volumes, increasing sequentially as an important part of the recovery here.

Thank you a quick clarity.

On the pricing comment as well as Lenny said.

Pricing is.

Not close to cash cost.

Last couple of quarters Q2 Q1.

But in the guidance that we provided in Q3 with the pricing that we have.

They're in the placing that.

We are seeing in the market, particularly NAND.

Secondly, you will see the.

Cash cost for Q3.

And.

And getting closer in terms of DRAM as well, but.

I just wanted to highlight that cash cost is obviously different from variable cost the variable cost is much lower than cash costs, because certain cash costs.

Fixed in nature, so wanted to just to provide that clarification.

Thank you one moment for our next question.

And our next question comes from the line of Vijay Rakesh from Mizuho. Your question. Please.

Yes, Hi, just a quick question just going back on the inventory side I should look out exiting next quarter given the incremental funding from Dominion of write Downs and I know you mentioned, 25% wafer start cuts now.

And the Capex tweaks I guess, what do you expect inventory exiting the quarter to be closer to that 7 billion $7 billion range.

And then a follow up.

Yeah on the on a dollar basis, we would expect inventory levels to remain elevated for some time, but begin to come down.

Through <unk>.

<unk> 24.

So, but again it depends on.

Bob.

Yes, it depends on the.

Nature of the recovery.

And we do expect bit shipment volumes to increase.

Through the year end.

And <unk>.

Inventory days, certainly too on a pre write off basis to come down and then on a dollar basis eventually begin to come down.

Got it and then on the write downs between February and the May quarter, just wondering.

What would be the split between DRAM and NAND.

And in DRAM and NAND and.

DRAM is done that you've taken more on the PDL for the DDS side.

Since you would expect from DDR Fry demand could probably pick up into the back half so might be some benefit from that.

Any color there thanks.

Yes.

Yes, we just report these.

Write downs at the corporate level and given how we run the business unprecedented another factor. So we don't break it down by technology or by Bu.

Thank you one moment for our next question.

Our next question comes from the line of Sidney Ho from Deutsche Bank. Your question. Please.

Hi, Thanks for taking the question so I'm still trying to figure out the <unk> utilization charges, you're embedding in the fiscal third quarter guidance try to bridge. The gross margin of Q2 to Q3, excluding that inventory write down your top off maybe down 15 percentage points.

Is there any color you can provide just for fiscal Q3, I know you talked about $900 million for the fiscal for the for the full year.

Yes, we're just providing the.

Full year.

If we look at.

Alright, just provided the full year. If you give me a few minutes maybe go to the next question I can maybe give you a little bit more detail on the work that out.

Okay. The reason I ask that just to give you a background is because if I look at that down 15 points.

Let's assume half of that $900 million.

Is it included in fiscal Q3, that's already 12 points of margin different so that implies the ESP has not really declined as much but I am not sure. Thanks Mitch.

Missing, but maybe a second question, while you look at that.

Are you still expecting to have production cut now 25%, it's 20% through the end of this fiscal year are there any plans to go beyond the current the current fiscal year.

Yes, let me let me maybe answer your first question I have already got the answer on the first one so of the 900 <unk>.

<unk>.

Not quite half of it is in the third quarter and then.

And then we've got.

Amount split between.

Some second and fourth.

As it relates to.

Yeah, we've not commented on.

Not commented on utilization beyond 'twenty three Sanjay mentioned on the call that we may well have to evaluate that based on market conditions and so forth.

That's right.

Through this year.

And one thing.

I do want to clarify that.

The under utilization charge that Mark mentioned.

A portion of it is going to be in the write down amount.

<unk> as well so just like Canada.

That is a piece that.

You have to take into account and just just to be clear.

I mentioned this on the main call that the reason that proportion is is higher.

Total underutilization charges because.

Of that write down accounting and it's a fact.

So part of that that's $500 million of write downs.

Yes.

On the relationship.

These charges.

Part of the 500 would include utilization also.

Okay.

Utilization underutilization.

Underutilization creates higher cost inventory so by definition as you're Azure.

Writing that inventory down.

Part of that charge would be that underutilization related cost.

Got it got it quick.

Quick follow up if I may if you exclude the inventory write downs can you say what the DRAM gross margin is negative in fiscal Q3 and at what point does it make sense to cut further production or completely stopped production probably not realistic.

Since you want to maintain your shares.

Okay.

I mean, we are not.

Giving out.

Gross margin breakout breakdown between DRAM and NAND, particularly.

All of these charges that were talking about related to Underutilization inventory.

Right down et cetera, so definitely we can provide more color when we report results.

At this time, but having said that.

Broadly speaking our.

Our goal is to certainly keep flat bit sure.

And customers and to <unk>.

Not.

Drive the pricing down to gain share just where you had a follow on price.

Trying to just keep our share flat.

And manage our business.

Sydney, one more thing that Mark mentioned on the.

You may recall was that the.

The gross margins, excluding the impact of the write downs in Q3 was 75% negative.

Obviously, the DRAM margins are a lot better than that that is something.

We can see.

While we are not providing you the details and split between the DRAM and NAND gross margins.

And certainly one other one other thing.

On the.

On the Underutilization charge, which I mentioned.

That's <unk>.

That's inclusive of.

Costs that are absorbed in the inventories and also period costs and just keep in mind that if there is then translating what portion of that goes into the write down.

Clearly the only the portion that's related to the inventory costs.

So just wanted to make sure that distinction was.

Noted.

Thank you. Our next question comes from the line of harsh Kumar from Piper Sandler Your question. Please.

Yeah, Hey, guys. Thanks for letting me ask the question I was just curious very roughly.

What is the price difference between DDR floor and DDR five right now that you guys are seeing and then also maybe you can help us think about how much of your DRAM revenues.

Is <unk> right now.

How much do you think or when do you think the crossover will occur for you guys.

Yes, so in terms of DDR four versus DDR five.

We still have.

The premium between BB.

<unk> four <unk> five <unk>.

Premium the premium is bigger in the data center than it is in the client space.

And both data center and client.

DDR five to continue ramping through this curve.

Current and next calendar year, and we expect to crossover to happen in both segments around mid calendar 2024 from a bid perspective.

Russell will happen earlier on a revenue basis.

But it will happen around mid 2024 on a bid basis.

Okay.

Understood. Thank you guys.

Thank you one moment for our next question.

And our next question comes from the line of Bruce <unk> from BMO. Your question. Please.

Hi, Thank you excuse me Mark I know you had been.

Very helpful. In answering all these questions on the inventory I had a couple of clarifications.

At the beginning of your prepared remarks, you said this is.

Not due to citizens and then.

Did I get it right that in the fiscal third quarter.

It will be $300 million.

Included in <unk>.

And that from the $1 $4 billion write down.

Yes, the reference to the 300 <unk> was.

The $1 four creates lower cost inventories and so the $300 in reference to the benefit associated with that.

Our cost inventory sell through.

In other words had we not written it down.

We would have $300 million less income and pre Q versus since we pulled those inventory costs forward into two <unk>, we now have $300 million higher income in <unk>.

Got it so it's not necessarily that Brett.

With that Brad that separate of course from yes that the inventory charge.

And <unk> is the $500 million, that's an incremental inventory charge.

Got it.

So the.

The one four and 500 charges that you've taken now.

We should continue to see benefit unsaturated distance.

Inventory is not being is not going obsolete you said theres no risk then.

Correct, that's permanently lower cost inventory.

Yes.

Over the period that we sell yes.

It will move through and pass on it.

As part of the turns in the business.

Got it and you call that out explicitly right every quarter, then you'll get the benefit correct.

I mean, we haven't decided like we will see how the business proceeds.

Okay, and then sorry, just on the minus seven five number that you gave for fiscal third quarter does that.

Is that inclusive of the benefit from the $300 million, because you said strip out everything and Cisco.

That's stripping out that stripping out.

Right down.

Okay got it got it and then I had a quick one for Sumit on the Capex side.

This is a question I'm sure you get we all get.

What happens to your competitiveness.

You pushed out you know, what's the right way to think about it.

In terms of specifically on the DRAM side.

So I'll have <unk> answer that question sure sure.

Sure So Richard I think.

You gave some good color on the call about the.

Progress that we're making on our.

Both of our new technology nodes that we announced last year, one beta for DRAM and 232 layer for NAND and feel very good about what those are going to be able to deliver in terms of.

You know a bit per wafer gain over the prior notes both of which were also a good node. So feel really good about the intrinsic technology capability and then now the.

Sure.

The yield ramps that we have.

<unk> been able to demonstrate our.

Reaching reaching targeted yields faster than prior nodes really faster than he knows that our history. So we feel very good about our ability to demonstrate technology capability and now we're preparing to do is to enable those both of those technologies across our broad portfolio of products for example in one data.

We talked about in our prepared.

Repaired remarks, the LP five part thats going to be.

Generating revenue for US later this year, but we're also going to be utilizing that technology across DDR, five and compute across high bandwidth memory graphics et cetera, so kind of getting ready to use that.

Try it out across the portfolio and similarly in NAND. We have started in client SSD rule will move the 232 layer into mobile into data center.

We feel very good about that and then as we look forward to.

Yes.

The next generation nodes for example, one gamma making very good progress on one gamma.

And in.

In particular, that's the number we're going to introduce <unk>.

And we've actually already taken delivery of whether we've mentioned before of our first production of UV tools in Taiwan, and we've actually already started.

Using those tools to some degree on.

Limited production in our what alpha and it's already within Gist.

Just a couple of quarters of having landed the tools.

Gives us confidence that when we introduce one camera will also be a strong introduction with with good.

Inherit technology capability for.

For wafer gain and cost reduction as well as going to it's going to ramp predictably and provide a strong cost reduction for across the portfolio.

Okay. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of increment from BNP. Your question. Please.

Yes. Thank you.

Two quick ones, if I may just.

But I was hoping you could discuss your China exposure by product category. My understanding is that you are primarily tied to mobile.

But if you perhaps rank order the remaining segments, who would be very helpful. As we think about the pending recovery in China.

Yes, I mean, we definitely have.

The dealer business in China, as you said mobile customers.

Very strong center in China for mobile Oems.

We also have very strong automotive business there as you know the EUA.

Vehicle.

<unk> Heiko drove hockey.

It could be expected.

Can you give a really.

Really high in China. The penetration is very high the uptake is very high in these cars.

Especially in the medium to higher and have a lot of electronics.

Conductor components in them. So we have a good day.

Acquisition as you know.

<unk> are market share leaders in automotive so we continue to have a good.

Our position there as well and then of course, we have.

Customers on the client side.

As well as on the data center side.

A broad range of customers. So we are pretty diversified.

Across many different segments.

And.

We expect that.

China recovery gains momentum after the reopening we.

We do expect that there will be some demand uplift coming from China later and got into 'twenty three.

That's helpful. Thank you if I may for my second question Hugh.

Mark you indicated 'twenty 'twenty four capex will decline from 2023.

Perhaps maybe just a question for <unk>, but is it fair to suggest you are implicit outlook is that capex will be all brownfield or upgrades and then you would achieve projected demand, which should recover in fiscal 'twenty four through the inventory on your balance sheet, unless maybe demand were to recover faster than you currently expect maybe.

Discuss that a bit more color that'd be very helpful. Thank you.

Sure. So as we we have taken multiple levers to be able to reduce the supply.

Reduced capex.

<unk> in particular, as we talked about more than 50% for FY2023.

We've said that for 'twenty four it will be even lower.

Also reduced utilization.

Within our facilities and then last one as we held inventory, we're holding inventory on our balance sheet. So as we look forward into 'twenty four the first thing, we'll do is bring our inventories down and that will help us to.

Be able to meet demand in.

Keep up as the market increases a bit growth increases that we.

See we talked about.

And our inventories will come down and then as we start to feel comfortable that where we have a trajectory to reach our inventory targets of course, we can.

Increase our utilization rates to be able to increase supply as well.

And then the.

Then.

We will be focused on even as we go through 'twenty four is bringing the benefits of the new technology to the product portfolio.

Whether thats, one beta or whether that's a 232 layer.

Very clear thanks.

Thank you one moment for our next question.

Our next question comes from the line of Mehdi Hosseini from <unk>.

Your question please.

Yes, Thanks for taking my question a couple of follow ups.

I'm just looking at.

Quarterly Capex trends.

Sure.

Several cycles and I come up with an estimate.

You May go.

<unk> billion annualized Capex just for maintenance.

What it would take too.

Utilization rate.

70% to 80%.

Obviously, we can abroad.

Guess.

But.

<unk> is a $4 billion annualized maintenance capex in the ballpark.

Maybe I don't know that we've really kind of given a definition I think different folks have different definitions about what maintenance capex.

Involved so I don't.

I think we are.

Norway prepared.

Maintain sort of it.

Sure.

Yes, so if you think about.

The.

The Capex and the way we were.

Sure.

The elements that we have the big buckets are of course, <unk>, which primarily is for technology transitions and when implemented the way we typically have that does provide bit growth.

The technology transition Wi Fi does provide growth as the primary source of the bit growth that we would target within our supply.

<unk>.

The facilities requirements that we have four.

Implementing those implementing those technologies and adding the the.

New equipment and those tend to be a little bit lumpier than you do.

Sort of well in advance of when you when you need them and in fact.

I think we mentioned that.

The mix of our Capex in the second half of this year is moving more towards.

Construction is becoming an increasing part of the.

The second half of the year.

More than double more than.

Twice, what it was in the first half of the year.

Sort of.

Starting to prepare to clean room space for the future.

And then we have the assembly test and other R&D and other areas that we have that are.

To be able to either provide us with our.

With good cost reductions for our managing our assembly test cost or to provide R&D capabilities for the future. So these are kind of the big buckets that we typically define our our capex.

Mainly the Capex is not really like a consumable.

So it's more it is spot.

Technology transition product enablement.

And.

Advancing to more advanced nodes, which is giving you better cost and better production. So you shouldn't you.

You shouldn't think that just flow maintaining the production we need to invest in capex.

Got it Okay. I was just trying to get a sense of.

Nick.

Cash.

Would go to.

I'd like to forecast cash flows okay, and then just looking beyond the current.

Environment, obviously, there's a lot of moving parts with the wide open.

Utilization charges, let's say February of Kevin the 24th.

Q2, that's slide 24.

No.

And.

You have your let's say some of the deal for the.

Costs down and then Didier five pre.

Premium.

DDR four.

If all equal even if prices were to go sideways.

Given these inventory adjustments.

If prices were.

The stable you should you should be able to.

A better margin profile.

Cruising all the onetime charges.

Yes, Matt.

Not providing yes.

Specific guidance that far out and we will as we get closer to the date and the market situation becomes clear we did give you a profile on <unk>.

How to look at the back half of this year end.

Expected improvement on.

Gross margin through 'twenty four assuming that all of these factors we laid out move in the direction that we expect and as you as you point out.

Particularly if youre talking about second quarter of 'twenty four.

Some of the write downs that would occur in third quarter.

That lower cost inventory would be passing through in the second quarter of 'twenty four.

So can you.

Okay.

Okay. Two questions do you mind, if I just have a quick follow up.

Good morning.

This is February of next year as you think about.

DDR five premium for both the PC and server application.

Would that be that premium would that be also the.

Market pricing for <unk>.

That would be also that.

So just to give you a forward that you have.

Yes, I mean I think.

A lot depends on.

The market environment and competitive behavior, but generally obviously DDR for as you know.

Versus Edr five five pence.

Bigger die.

Thanks.

At the margin level as well because it has.

<unk>.

Compared to Q4, so it's higher.

But also higher cost. So those are some other factors that come into play and like you said I mean, the DDR for DDR five transition is going to be taking place and there is.

More inventory and DDR four than there is in DDR five so a lot more fiber deployment in the future comes in as new purchases from our customers.

Another thing to look at it but I think broadly speaking I think you have a number of data points that we have delighted to you.

Which include our <unk>.

Bottoming in fiscal Q1 of this year.

<unk>.

Before.

Days of inventory, peaking in fiscal Q2.

Our data center revenue bottoming in fiscal Q2.

Customer inventories improving revenue zoom out of all of this.

We've also told you that looking at 2025 calendar year, we expect record time in that year. So we do expect that.

Looking out multiple quarters and into 25 that is going to be a very substantial amount of growth that we are expecting in that timeframe.

Particularly in the late 'twenty, four 'twenty five timeframe and.

Obviously, continuing to focus on significant improvements in profitability and trajectory of free cash flow in the interim from <unk> to 'twenty four.

Sure.

Got it thank you.

One other thing.

Data are ones that you have to about <unk> 5 million or one beta technology is optimized for DDR five.

In terms of the architecture and the technology. So we feel very good about what that will eventually position as the market transitions.

Okay.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Brian Chin from Stifel. Your question. Please.

Hi, there good afternoon, thanks for taking the question.

Maybe a two parter on sort of demand.

I think too many people have asked about that but what was the lion's share of the reduction in the calendar 'twenty three memory bit demand forecast is that related mainly to data center.

What is your also underlying assumption for data center bit demand growth in calendar 'twenty three and then sorry, the second part of that is.

Does your expectation for a mid single digit decline.

And the calendar 'twenty three PC Tam does that sell out or selling figure I asked because it sounds like it could be weaker than then down mid single digits, and I think <unk> more into kind of activity levels at the Oems.

Yeah.

Yes.

Definitely a good question and we focus on.

A lot of these dynamics with our customers on an ongoing basis. So.

In the last three months since our last earnings call. We definitely have been continuously assessing as we always do the level of inventories that customers have and its impact on demand for.

And also the pace of progress.

Inventories for the inventories have been improving.

So it's a matter of the rate and pace of that improvement that we have to adjust for it in our plan, but also the extent of the.

Pulled back and growth estimates for both PC units as well as smartphones smartphones going from.

Low single digit increase to low single digit decrease in units in calendar 'twenty three over the last three months and on the PC side, Yes mid single digit decrease.

That puts the PC units.

This is more of a.

A sell through comment.

What's the PC units.

At a level that is very consistent with the level of that vehicle, but in 2019 from our global PC unit sales perspective. So that's how we think about the PC business.

<unk>.

Certainly different customers have different amounts of channel inventory, so they're on sell in versus sell out rates will be different.

And on demand expectations are based on a bottoms up view of what we are feeling customers sell out is going to be.

Because thats going to.

<unk> seven is going to be into the channel because thats going to determine the consumption of DRAM and NAND.

Okay, Okay, great that makes sense, maybe just a quick thing.

In technology kind of separate but.

In terms of mix I know you might be too specific about percentages and crossover et cetera, when next year.

Kind of plan for wafer inputs to really began to shift toward one data.

232 layer <unk>.

Acknowledges.

I know it may become more observant.

Once once you are kind of out of some of the utilization charges and et cetera, right FIFO inventory et cetera, but I.

Im wondering if there is a kind of a particular point.

Next year that you're kind of anticipating that to start to pick up some inertia.

It's too far out Brian great like at this point I don't think its worthwhile, but like you said is demand picture improves.

We will.

Have more clarity on it.

And we just have to see.

Time play out and as we turn back on the utilization and that is currently being implemented.

Zero.

Also ramp one data at that time from the demand improves.

That's fair enough. Thank you.

Thank you one moment for our next question.

And our next question.

From the line of <unk> from Raymond James Your question. Please.

Thank you Mark.

Im just trying to figure out the cash flow for next quarter.

Obviously, you got some help from working capital in the February quarter. So if you could maybe help us.

If you are expecting somewhat similar benefit from working capital.

In the next quarter or two I think that'll be really helpful.

Okay.

Yes.

I think listen on free cash I think it is helpful that maybe step back and.

This has been such a sharp and sudden downturn.

And we know we know all the factors and we've been aggressively and with even greater intensity through the fall.

Taking actions.

Capex reductions cutting operating spend.

Lowering utilization.

And even heard some additional actions announced today so yes.

We've also.

Over the past several months.

Used our balance sheet to bolster liquidity and make sure that we're making the best long term decisions for the business and.

And so that's.

That sort of give some backdrop as to where we are I mean, our actions are helping.

<unk> improves the financial picture from what it would be otherwise, but it's.

It's clear that.

We need the broader markets are recovering more specifically more supply to come out of the system, but.

On free cash flow, we do expect.

Free cash flow to improve from here.

Slightly as first at first <unk>.

Second the third quarter.

As reductions in Capex are partially offset by weak operating cash flows.

We have low volumes and challenging pricing so that's.

That's weighing on operating cash flow as the benefits of the receivables have waned and the.

And the inventories remain elevated.

Over time, though we see free cash flow improving sequentially.

By sustaining our capital discipline.

And importantly, improving operating fundamentals.

Specifically, we do see shipments.

Continuing to increase from here as we've talked about customers replenish inventories inventories begin to decline.

Across the industry and channel supply demand balance to improve in pricing to revert to more sustainable levels thats not sustainable where it is.

So between our actions in a healthier industry, we see fundamentals improving.

And we're certainly focused on returning to positive free cash flow within.

Quarterly positive free cash flow within fiscal 'twenty four.

Got it but it doesn't look like you're assuming your inventory levels to decline in absolute basis in the may quarter.

Alright.

Sort of elevated inventory levels are.

In part contributing to this free.

Free cash flow.

Use that we have and we're certainly.

Sure.

Reducing capex and spend and other things to improve the situation and we do expect slight improvement in free cash flow.

In the third quarter relative to the second but it is.

Still negative.

Significantly got it got it thank you and one.

Question on the mechanics of the under utilization may be for munis.

As we as we go through the next few quarters.

Demand starts to recover.

Just curious if you expect pretty much all of the 100% of the underutilized capacity to come back or.

At what point some of the capacity becomes permanently impair our move to the next node I guess and then as you bring that back is there any incremental capex that we should be aware of.

Sure I'm glad you asked that it's actually definitely one of the considerations that we have when we think about Underutilization is as we implement these new technology nodes, we can utilize some of this.

Idled equipment to help us be capital efficient as we implement the next generation nodes right. So.

That's always the balance that we're thinking about it I wouldn't think of it in terms of any sort of impairment I don't think that we're in that window or reuse node to node is very good. So I wouldnt I don't think that idled equipment ends up getting impaired.

First order consideration, but.

The ability to utilize some of the equipment could be a little bit more efficient as we transition to new nodes because as we mentioned new notes could provide new product capabilities, whether thats higher performance products or as we mentioned DDR five capability or or others. We're trying to make sure we balanced the whole picture on.

Utilization capex and demand for new technologies across our portfolio.

I guess as you bring that capacity back online is there any incremental capex that we should be aware of in the short term.

Okay.

No.

Not specifically for bringing online, but it depends on how we have multiple options of how we bring that capacity online in order to implement.

<unk>.

New technology nodes or to just replace the capacity that we had had taken down before.

Got it thank you.

Thank you. This does conclude the question and answer session as well as today's program. Thank you ladies and gentlemen, you may now disconnect good day.

Q2 2023 Micron Technology Inc Post Earnings Analyst Call

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